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Oil and Gas Stock Roundup: Oil Price Volatility Rears Its Ugly Head Again

Crude oil was all over the map this week, which led to some wild swings in the oil market.

What happened

Oil prices were all over the map this week, up one day on bullish buying only to get clobbered the next after disappointing data. Overall, crude ended the week down about 4%, with the U.S. oil benchmark price WTI settling just above $45 per barrel on renewed supply worries due to surging U.S. production. That drop in the oil market sent several oil stocks spiraling lower this week, though there was one bright spot worth pointing out.

So what

While turbulent oil prices played a starring role in the price movements of oil stocks this week, some of the market's biggest losers had company-specific news that seemed to make matters worse. For example, Permian Basin driller Rosehill Resources(NASDAQ:ROSE) slumped after announcing that it hired away Southwestern Energy's (NYSE:SWN) CFO to be its CFO. While investors typically celebrate poaching a senior executive from a much larger company, that didn't happen for Rosehill Resources. That might be due to concerns about Southwestern's financial struggles over the past several years as the result of its decision to finance a major acquisition with debt, or it could simply be bad timing amid falling oil prices.

Image source: Getty Images.

Another of this week's biggest decliners was midstream company SemGroup(NYSE:SEMG). Driving its slump was the decision to spend $2.1 billion to acquire the Houston Fuel Oil Terminal Company from a private equity fund. Investors weren't overly thrilled with the deal structure and the fact that it won't be accretive to earnings this year. That said, SemGroup saw the transaction as an important driver of future growth, positioning the company to deliver 8% to 10% dividend growth through 2020.

Another laggard this week was Basic Energy Services(NYSE:BAS), which declined solely due to falling oil prices. The price plunge has investors worried about the oilfield service company because it struggled mightily during the oil market downturn, ultimately filing for bankruptcy protection. While Basic Energy Service reemerged from bankruptcy at the end of last year with a more sustainable cost structure and improved balance sheet, it needs higher oil prices to thrive, because those prices will drive customer demand for its services. With prices revisiting their 2017 low this week, it might force producers to cut back on drilling new wells, which could impact Basic Energy Services' financial results in the second half of the year.

That said, the news wasn't all bad in the oil patch this week. Analysts at Cowen called out the upside potential in offshore service provider Helix Energy Solutions (NYSE:HLX), upgrading the stock from market perform to outperform and increasing their price target from $8 to $10 per share. Fueling the upgrade was the belief that Helix Energy Solutions is less risky after putting its Siem Helix 1 to work and completing a $320 million equity issuance to bolster its balance sheet. Because of that, Cowen thinks that the company offers an attractive risk-reward proposition since customer contracts should drive earnings growth through 2020. That reminder of what appears to lie ahead enabled Helix to buck the trend and rally double-digits this week.

Now what

Crude oil continues to trade lower than expected this year because shale producers have ramped their output, offsetting the OPEC-led production cuts. That has heightened the volatility in the market, causing investors to sell oil stocks off on any hint of bad news, whether oil-price-related or due to company-specific events. While there are outliers here and there, the market as a whole looks like it will remain a challenging place for investors in the near term -- especially in the sector's weakest links -- until fundamentals show clear signs of improving.

Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Author

Matthew is a Senior Energy and Materials Specialist with The Motley Fool. He graduated from the Liberty University with a degree in Biblical Studies and a Masters of Business Administration. You can follow him on Twitter for the latest news and analysis of the energy and materials industries: Follow @matthewdilallo